Preliminary Results 2011/12

Record Group results – £1 billion UK investment underway


Financial headlines:

  • Group sales up 7.4% to £72.0bn*, up 5.9% exc. petrol
  • Statutory profit before tax up 5.3% to £3.8bn; Underlying profit before tax up 1.6% to £3.9bn
  • Group trading profit up 1.3% to £3.8bn – UK down (1.0)% to £2.5bn; International up 17.7% to £1.1bn
  • Underlying diluted EPS growth of 2.1%**; dividend per share growth of 2.1%
  • Results in line with latest market consensus***
  • Increase in return on capital employed to 13.3%; 2014/15 14.6% target maintained
  • Financial strategy to put increased focus on delivering sustainable business growth, improving returns and higher level of cash generation
  • Reducing Group capital expenditure from £3.8bn in 2011/12 to £3.3bn in 2012/13

Business update:

  • UK plan being implemented, beginning with recruitment and training of over 8,000 new staff in existing stores – part of 20,000 net new jobs over two years
  • UK net new space growth to reduce by 38%, with renewed focus on existing portfolio reflected in a comprehensive Refresh programme, starting with 430 stores in 2012/13
  • Internet investment increasing rapidly across the Group – new Tesco Direct website launched
  • Tesco Bank migration to complete next month – ready for further growth
  • United States losses reduced by 17.7%; on track for further significant reduction in current year
  • Market share increases in 10 of our 13 markets****
  • We donated £74.5 million to charities and good causes, including significant support for Thai communities affected by last year's tragic floods
  • Recognised as best retailer in the Carbon Disclosure Project's Global 500 Index

UK Plan – Building a Better Tesco:

  • £1bn commitment this year to improve the shopping trip for customers – including c.£0.4bn of capital investment – focused on six key elements:
    • 1. Service & Staff – more staff for existing stores, initially in fresh food departments
    • 2. Stores & Formats – faster store Refresh programme; introducing warmer look and feel
    • 3. Price & Value – better prices and promotions, more personalised offers
    • 4. Range & Quality – better ranges, starting with re-launching the Tesco brands
    • 5. Brand & Marketing – better, clearer, more relevant communication with customers
    • 6. Clicks & Bricks – Click & Collect roll out, transforming range and online presence

* Group sales (inc. VAT) exclude the accounting impact of IFRIC 13.
** Underlying diluted EPS growth calculated on a constant tax rate basis; 3.2% at actual tax rates.
*** Source: Vuma consensus estimates, published February 2012.
**** Exc. Japan

Philip Clarke – Chief Executive

"The last few months have seen us drive a faster pace of change in Tesco, particularly in the UK, reflecting our determined focus on the immediate objectives for the Group that were set out last April. This pace of change will accelerate further over the next twelve months. We have already taken important steps to renew and strengthen management in the UK and across the Group in key areas, to support this programme of change.

"Whilst our International business is delivering excellent growth, contributing £1.1 billion of profit to the Group, we fully recognise that we need to raise our game in the UK. As a result, we are committing over £1 billion to make the UK shopping trip better for customers: more staff giving improved service in-store; refreshed stores that are better and easier places to shop; lower prices and even more value from an improved product range. As we improve the shopping trip for our customers, it will follow that our sales growth and financial performance will improve too.

"These are decisive steps and this cost investment – as we have already announced – will constrain our near-term profitability. We are also focusing our lower overall capital expenditure more into our existing stores and in building our online businesses. We are adapting our UK capital plans so that we have the right store base for the future, to underpin the returns that create long term value for our shareholders. Together these steps are the right things to do both to improve the shopping trip for customers and to secure a return to profitable growth in the UK."


Continuing operations
52 weeks ended 25 February 2012 (unaudited)
2011/12 Change
vs. 2010/11
Group sales (inc. VAT)* £72,035m 7.4%
Group revenue (exc. VAT) £64,539m 6.8%
Group trading profit £3,761m 1.3%
Group trading profit (pre Bank PPI** provision increase and Hungary sales tax) £3,856m 5.2%
Underlying profit before tax £3,915m 1.6%
Underlying profit before tax (pre Bank PPI provision increase and Hungary sales tax) £4,010m 5.4%
Group profit before tax £3,835m 5.3%
Underlying diluted earnings per share 37.41p 2.1%***
Diluted earnings per share 36.64p 7.0%
Dividend per share 14.76p 2.1%


Despite an economic environment which remains mixed for our businesses around the world, we are at this stage comfortable with latest market consensus forecasts**** for 2012/13. At home, a sluggish economic recovery masks a still challenging environment for consumers and similar conditions exist in some of our markets outside the UK, including in Central Europe. Oil prices and the burden of increasing regulation and taxation from governments also contribute to these challenges. However, the diversity of the Group, combined with improving performance in a number of key businesses – such as Fresh & Easy and Tesco Bank – mean that we remain confident of making modest progress this year despite the substantial planned revenue investment in the UK business.

*Group sales (inc. VAT) exclude the accounting impact of IFRIC 13.
**Payment Protection Insurance (PPI).
***Underlying diluted EPS growth calculated on a constant tax rate basis; 3.2% at actual tax rates.
****Source: Vuma consensus estimates, published February 2012.


Continuing operations2 Group UK3 Asia Europe US Tesco Bank
Growth % TY
Sales (inc. VAT)4 72,035 67,074 7.4% 47,355 11,627 11,371 638 1,044
Growth %   6.2% 10.5% 7.7% 27.1% 13.6%
UK LFL (exc. Petrol)   (0.0)%    
Revenue (exc. VAT)5 64,539 60,455 6.8% 42,248 10,793 9,826 628 1,044
Growth %   5.3% 10.5% 7.3% 26.9% 13.6%
UK LFL – IFRIC 13 compliant basis (exc. Petrol)   (0.6)%  
Trading profit/(loss)6 3,761 3,714 1.3% 2,480 737 529 (153) 168
Growth %   (1.0)% 21.8% 0.4% 17.7% (36.4)%
Trading profit margin4 5.77% 6.07% (30)bp 5.79% 6.81% 5.36% (24.29)% 16.09%
Change (basis points)   (35)bp 64bp (37)bp 1,329bp (1,264)bp
Trading profit ex Hungary Tax and PPI 3,856 3,664 5.2%   567   225
Growth %     7.6%   5.1%
Profit arising on property-related items 376 432 (13.0)%  
Deduct: IAS adjustments (152) (229) 33.6%  
Statutory/ operating profit 3,985 3,917 1.7%  
JVs and associates 91 57 59.6%  
Net finance costs (241) (333) 27.6%  
Statutory profit before tax 3,835 3,641 5.3%  
Add: IAS adjustments 80 212 (62.3)%  
Underlying profit before tax7 3,915 3,853 1.6%  
Dividend per share (pence) 14.76 14.46 2.1%  
  Group UK Asia Europe US Tesco Bank
Capital expenditure (£bn) 3.8 3.7 0.1 1.6 1.2 0.7 0.2 0.2
Gross space added
(million sq.ft.)
10.0 9.3 0.7 2.6 4.5 2.7 0.3 n/a
  1. The financial year represents the 52 weeks ended 25 February 2012 (prior financial year 52 weeks ended 26 February 2011). For the UK, the Republic of Ireland and the US, the results are for the 52 weeks ended 25 February 2012 (prior financial year 52 weeks ended 26 February 2011). For all other operations, the results are for the calendar year ended 29 February 2012 (prior financial year ended 28 February 2011). All growth rates are calculated at actual exchange rates unless otherwise stated. Statutory numbers include the accounting impact of IFRIC 13 (Customer Loyalty Programmes). All other numbers are shown excluding the accounting impact of IFRIC 13, consistent with internal management reporting. More information can be found in Note 1 to the preliminary consolidated financial information.
  2. Continuing operations exclude the results from our operation in Japan which have been treated as discontinued following our decision to sell the business.
  3. The UK segment excludes Tesco Bank, which is reported separately in accordance with IFRS 8 'Operating Segments'.
  4. Excludes the accounting impact of IFRIC 13 (Customer Loyalty Programmes). Trading margin is based on revenue excluding the accounting impact of IFRIC 13.
  5. Includes the accounting impact of IFRIC 13 (Customer Loyalty Programmes).
  6. Trading profit excludes property profits and makes the same additional adjustments as our underlying profit measure, except for the impact of non-cash elements of IAS 32 and 39, and the interest element of IAS 19.
  7. Underlying profit excludes the impact of non-cash elements of IAS 17, 19, 32, and 39 (principally the impact of annual uplifts in rents and rent-free periods, pension costs, and the marking to market of financial instruments); the amortisation charge on intangible assets arising on acquisition (Tesco Bank) and acquisition costs, and the non-cash impact of IFRIC 13 (Customer Loyalty Programmes). It also excludes restructuring and other one-off costs (relating to the US, Europe and Tesco Bank) and closure costs (Vin Plus).
  8. Including Japan as a discontinued operation.
  TY LY YOY Change  
Cashflow from operating activities (£bn) 4.4 4.2 0.2  
IFRS pensions liability post-tax (£bn) 1.4 1.0 0.4  
Net debt (£bn)8 6.8 6.8 0.0  

Group Results

Group sales, including VAT, increased by 7.4% to £72.0bn. At constant exchange rates, sales also increased by 7.4% (including petrol) and 6.0% (excluding petrol).

Group trading profit was £3,761m, up 1.3% on last year. This included two one time events – Hungary sales tax and an increase in provisions in Tesco Bank relating to payment protection insurance (PPI). Before these items, Group trading profit increased by 5.2%. Group trading margin, at 5.8%, decreased by 30 basis points after the impact of the increase in PPI provision and Hungary sales tax, and by 7 basis points, to 5.9% before these items. Underlying profit before tax rose to £3,915m, an increase of 1.6%. Before the additional PPI provision and Hungary sales tax, underlying profit before tax rose by 5.4%. Group profit before tax increased 5.3% to £3,835m.

As a consequence of the previously announced decision to sell our business in Japan, the results of our business there, including a small full year trading loss (£(25)m) before store impairment (£77m) and the impact of restructuring costs (£23m), have been classified as discontinued operations in these results.

Net finance costs decreased to £241m (£333m last year). £35m of this reduction was the result of the revaluation of the liability relating to our obligation to purchase Samsung's minority interest in our business in Korea, which we completed in July and which was included in our first half results. Before the non-cash IAS 19, 32, and 39 adjustments, actual net interest cost also fell by £(30)m to £303m. Capitalised interest reduced by £7m to £140m.

Total Group tax has been charged at an effective rate of 22.9% (last year 23.7%). This reduction mainly reflects a fall in the UK corporation tax rate.

Cash Flow and Balance Sheet. Net debt remained at £6.8bn, reflecting lower levels of property proceeds, a lower level of working capital improvement as well as the £290m repurchase of Tesco shares to offset share scheme equity issuance. The strength of our property-backed balance sheet was again demonstrated through continued strong investor demand for our property sale and leaseback transactions and the recent very successful Tesco Lotus PFPO, which completed after the year-end. This raised £379m of proceeds from the sale of 17 high quality shopping malls in Thailand.

Pensions. The Group's net pension deficit after tax has increased from £992m to £1,406m. The increase is largely due to a reduction in bond yields and asset returns being lower than expected. Our pension scheme is highly valued by our staff and remains one of the best in the UK. We announced last month that we are keeping our UK defined benefit scheme but are proposing some essential changes to keep it sustainable in the future. We also made a one-off cash contribution of £180m after the year-end, in anticipation of the forthcoming outcome of the triennial actuarial valuation.

Group capital expenditure was £3.8bn, or 5.3% of sales (2010/11: £3.7bn). Capital expenditure in the UK was £1.6bn, with a further £0.2bn in the Bank, principally for continued and now largely completed investment in the re-platforming of our systems, and £2.1bn in International.

We plan to invest a lower level of Group capital expenditure in the current financial year – from £3.8bn in 2011/12 to £3.3bn in 2012/13. A key driver of this change is a reduced new store opening programme in the UK, with around 38% less net new space opening in 2012/13 than in 2011/12. This will result in an overall reduction in UK capital expenditure even though we are stepping up our investment in existing stores and online.

Going forward, we intend total capital expenditure for the Group to remain comfortably below 5% of sales. These changes in relation to capital expenditure form part of a financial strategy which supports sustainable business growth, as we continue to invest whilst also moving towards a higher level of cash generation and, in line with our stated objective, improving return on capital employed.

Return on Capital Employed

Group Return on Capital Employed (ROCE) increased by 40 basis points during the year – to 13.3%. Despite the reset to market expectations of our profit performance in 2012/13, announced in January 2012, we still expect to deliver our targeted increase in ROCE to 14.6% by 2014/15.

This increase will be broadly based, driven by maturing investment overseas, combined with increased capital efficiency (including the work-in-progress release) and a reduced overall level of capital expenditure.


The Board has approved a final dividend of 10.13p per share. Combined with the increase in the interim dividend, this brings the full year dividend increase to 2.1%, in line with the growth in full year underlying diluted earnings per share at a constant tax rate. Dividend cover has increased to a strong 2.5* times. The final dividend will be paid on 6 July 2012 to shareholders on the Register of Members at the close of business on 27 April 2012.

* Dividend cover based on continuing operations basis

Tesco Team Objectives

Last April we set six immediate team objectives against which we expect to be judged. They are: first, keeping the UK strong and growing; second, becoming outstanding internationally, not just successful; third, as the combination of stores and online becomes compelling for customers, we aim to become a multi-channel retailer wherever we trade; fourth, we will deliver on the potential of retailing services – of which the Bank is a big part; fifth, by applying Group skill and scale we will add more value and competitive advantage to our businesses, and finally, delivering higher returns for shareholders has already begun and it will continue.

Our determined focus on these immediate objectives has seen us take action in key areas during the year to strengthen our performance:

  • First, we are making rapid, substantial changes to our UK business to sharpen execution and competitiveness for customers by investing in staff and training, price and promotions, ranging, service and store environment. This has required us to make a significant revenue and capital investment in the business which, when implemented, we expect to deliver a stronger sales performance in the months ahead;
  • Second, having decided last autumn to slow the final stage of Tesco Bank systems migration to ensure a smooth transition for customers, we have almost completed the migration and the business is now ready for further growth;
  • Third, Fresh & Easy is showing promising results, with losses having fallen for the first time. Although we have made slower progress towards breakeven than we expected, we now anticipate that this point will be reached during the 2013/14 financial year;
  • Fourth, having stepped up our investment Online during the year, in the UK we have recently introduced a substantially enhanced Tesco Direct website and product offer, rolled out Click & Collect to 774 stores for non-food and 45 for grocery, added a fourth dotcom-only store at Enfield – and also introduced dotcom grocery in the Czech Republic, with Poland soon to follow;
  • Fifth, in line with our target to increase Return on Capital Employed for shareholders, we are reducing our capital expenditure, focusing more of our investment on existing stores and pursuing growth through smaller, less capital intensive formats and online.



  UK Results 2011/12
  £m % growth
UK sales £47,355m 6.2%
UK revenue (exc. VAT, exc. impact of IFRIC 13) £42,798m 5.0%
UK trading profit £2,480m (1.0)%
Trading margin (trading profit/revenue) 5.79% (35)bp

UK trading conditions were difficult throughout the year, linked to the continuing adverse impact of high petrol prices and falling real incomes on customers' discretionary spending. Having delivered a solid first half profit outcome, profits and margins weakened in the second half. This was the result of a disappointing sales performance, particularly during the seasonally important Christmas period, combined with the impact of our step up in the investment in our customer offer.

Like-for-like sales, excluding petrol, were weaker than planned in the UK through much of the year. Nevertheless, combined with a strong contribution from net new space, linked to our excellent new store performance, our total sales growth was faster than the market as a whole. The like-for-like performance weakened during the second half, driven mainly by food & grocery, in part due to reduced levels of inflation, some of which was self-induced as we lowered prices. The more important driver of this deterioration, which was more pronounced in December and January, was a lack of couponing activity at a time when the industry at large was issuing large volumes of cumulative spend coupons. We have since remedied this with a more active couponing programme.

  UK LFL Growth 2011/12
  H1 Q3 Q4 H2 FY

*Compliant with IFRIC 13 (Loyalty schemes) – the variance between like-for-like sales growth excluding both petrol and VAT for the fourth quarter, and the same growth on an IFRIC 13-compliant basis is due principally to the consequences for revenue recognition of the changes to our Clubcard scheme announced in September.

LFL (inc.VAT, inc. petrol) 3.5% 3.4% 1.2% 2.2% 2.8%
LFL (inc VAT, exc. petrol) 0.5% 0.1% (1.0)% (0.5)% 0.0%
LFL (exc. VAT, exc. petrol) (0.5)% (0.9)% (1.6)% (1.2)% (0.9)%
LFL (exc. VAT, exc. petrol) IFRIC 13* (0.6)% (0.9)% (0.1)% (0.6)% (0.6)%

With net new space contributing 3.7%, total sales (excluding petrol and including VAT) grew by 3.7% in the year. However, excluding both petrol and VAT, like-for-like sales in the year reduced by (0.9)%, with a reduction of (1.6)% in the fourth quarter.

The UK Plan – Building a Better Tesco

It is against this background of slower than planned like-for-like growth and a further weakening in our performance relative to the wider industry that we took the decision in January to accelerate a plan – which had been developed over the course of 2011 – to make substantial changes to the UK business for customers. Elements of that plan, including the most significant changes to our pricing and promotions strategy for many years, had started to be introduced in the autumn of 2011. We had also begun, just before Christmas, to progress another key component of the plan – designed to increase significantly staffing levels in key departments – initially in over 200 trial stores – to improve service standards.

The additional investment we announced in January in these and other areas will result in a significant reset to the level of UK margins. This reset will give us the financial resources we need to make a comprehensive set of improvements to the shopping trip for customers over the course of the next few months.

Implementation of the plan has already begun to accelerate supported by a £1bn commitment this year to improve the overall shopping trip for customers – including c.£0.4bn of capital investment – focused on six key elements. In summary, these elements of the plan to reinvigorate the UK core business are:

  • 1. Service & Staff – more staff for existing stores, initially in fresh food departments
  • 2. Stores & Formats – faster store Refresh programme; introducing warmer look and feel
  • 3. Price & Value – better prices and promotions, more personalised offers
  • 4. Range & Quality – better ranges, starting with re-launching the Tesco brands
  • 5. Brand & Marketing – better, clearer, more relevant communication with customers
  • 6. Clicks & Bricks – Click & Collect roll out, transforming range and online presence
  • Service & Staff. We are investing substantially more in staff hours, particularly in our larger stores and in our fresh food departments. This will involve the recruitment of over eight thousand more store staff, which has already begun, as well as additional investment in training and equipment, with the aim of giving our stores more of the people, skills and tools they need to serve customers well. This activity alone will require additional revenue cost investment of over £200m.

    In the 16 trial stores in which we made similar changes last summer and subsequently in the extended pilot of over 200, which received additional resources just before Christmas – we have seen encouraging progress. The 16 have delivered an average like-for-like sales improvement relative to a control group of 1.2% and the 200 stores have shown an improvement of 1.1% so far. Overall customer perceptions of service, availability and quality have also shown significant improvement in these stores.

  • Stores & Formats. We are making some significant changes to our existing stores and we are altering our approach to new development. First, we have stepped up the pace of refreshing the existing estate, improving the look and feel of stores for customers – featuring warmer colours, better lighting, improved sightlines across the store and clearer, less functional signage. Within these changes, there has been a strong emphasis on fresh departments, including service counters, as well as for example, beers, wines and spirits areas. Again, after successful trials, we will refresh or refit some 430 stores in 2012/13 representing more than 25% of our total UK space. More than 40% of active Clubcard customers will see the difference.

    Secondly, our investment plans for new property are also changing – reflecting the growing importance of our online business in general merchandise, and our desire to focus on the most productive use of new capital. Whilst we will continue to expand across our range of formats, this change will reflect four priorities: maintaining investment in expanding our highly successful Express business, investing more in dotcom-only stores in densely populated areas, building out space we are committed to complete (in particular mixed-use schemes) and pursuing other new opportunities only with high return characteristics. This will mean new space added in 2012/13 will be 38% lower than in 2011/12 and capital expenditure in the UK will also reduce, despite our additional investment in existing space and online.

  • Price & Value. Last September we reinvested over £300m from the cost of double Clubcard points to lower the prices of 3,000 products, focusing on the most important lines for customers, as part of a new stronger pricing policy. At the same time we introduced other changes to the Clubcard scheme to ensure it remains the strongest in the market. We have seen some encouraging signs since the Big Price Drop was introduced – including, on our internal measures, a stronger shelf-edge price position against competitors and an improvement in volume growth relative to the market – but we have not seen the desired improvement in customer price perception. This was in part because we did not strike the right balance between price, promotion, couponing and loyalty investment for our customers, particularly in December and January.

    Going forward, we intend to further strengthen Price Drop to build trust in our pricing but we will also increase the promotional element of it with stronger deals, including improved seasonal events. In addition, our trials of new activities to encourage higher basket sizes and loyalty, including money-off couponing through Clubcard and at the checkout, have gone well and will be applied more widely.

  • Range & Quality. We have a programme of range improvement in key areas already underway with a focus on a complete re-launch of the Tesco Brand ranges, more store and format-specific ranging to improve choice for customers and further work to restore differentiation and growth to our general merchandise and clothing departments (see Page 11).

    The Tesco Value range is already growing at over twice the rate of the market as a whole, with more customers using it to help balance their budgets. The entire Value range is being re-launched – as Everyday Value – by the end of May including new, more contemporary packaging and 220 product quality improvements. The Tesco standard ranges, which comprise more than 8,000 products and represent around 40% of our UK food sales, are being comprehensively upgraded with a programme of range-by-range improvement, including over 2,000 new lines, through to April 2013.

    As part of strengthening the broad appeal of Tesco, we are increasing the flexibility for our stores and formats to adapt our offer more to local customer needs – including for example around ethnicity and affluence – following some very successful trials.

  • Brand & Marketing. We aim to back our increased investment in the shopping trip for customers with better brand communication. We have already made changes in marketing, including bringing dunnhumby back into the heart of the UK business to provide more insight to the improvements we are making for customers.

  • Clicks & Bricks. We are already a leader online, but as the pace of change quickens, we are planning significant improvements across all of our dotcom businesses, building on our strong base and anticipating further migration of customer shopping habits online. We are increasing our capital investment in this area to around £150m in 2012/13 and have already made a strong start with our new web platform for Tesco Direct launched a few weeks ago. The new website, which has been well received by customers, will soon house almost all of our UK online businesses. It is also a big step forward in terms of functionality and ease of use for customers, offering a much richer user experience and being fully configured for mobile devices for the first time. We have already doubled the number of products on the new website, bringing the total available to well over 75,000. The site also features the first of our marketplace vendors who are now selling additional ranges through A much greater expansion of the product range and further platform upgrades are planned in the months ahead.

    We are also making more use of our uniquely strong network of stores, offering even more customers the convenience of being able to pick up orders placed online close to where they live and work. We already have over 770 Click & Collect collection points in our stores across the UK, covering almost 70% of the country and handling 70% of online general merchandise orders. 70 of these are in Express stores, offering a new level of ease and convenience for customers. We will increase our coverage of the UK to 85% in the next year, with 700 new collection points. Grocery Click & Collect is now in 45 stores and growing fast and we are already trialling joint grocery and general merchandise collection points in a number of stores.

The combined revenue and capital investment of these initiatives will exceed £1 billion, including the 2012/13 incremental element of the investment of c.£500m we announced into core pricing in October last year. We are comfortable that the margin impact of this investment is consistent with the guidance we gave in January and appropriately reflected in latest market forecasts.

We have made a number of management changes in the UK during the course of the year, initially in the general merchandise, clothing and electricals and also, more recently, in store and operations management – including appointing format managing directors for Extra, Superstore, Metro and Express – and marketing. Many of these changes were put in place to drive the UK reinvigoration plan through the business.

Tesco Telecoms. We have made excellent progress in our telecoms business this year. Tesco Mobile's customer base has increased to over three million, with particularly strong growth in our pay-monthly contract business, helped by the popularity of our 'capped contracts' which help customers on tight budgets manage their costs. Our in-store phone shops – we now have 240 – are now profitable and we are adding a further 24 this year. Our new broadband offer, which makes fast broadband access much more affordable at £2.50 per month, has proved very popular with customers.


  International Results* 2011/12
  Actual rates Constant rates
  £m % growth % growth

*Exc. Japan

International sales £23,636m 9.5% 9.6%
International revenue (exc. VAT, exc. impact of IFRIC 13) £21,324m 9.4% 9.5%
International trading profit £1,113m 17.7% 16.5%
Trading margin (trading profit/revenue) 5.22% 37bp 31bp

During the year as a whole, our international businesses delivered good overall performance, with strong growth in sales and profit and increasing returns. In general we have been able to make progress against a background of still subdued economic growth across most of our countries and weakening consumer confidence in most markets, particularly in Europe but also in parts of Asia. It is encouraging that in this context, Tesco is winning share in almost all of its markets and in some countries this is continuing at a faster rate than for many years.

Our second half sales performance was satisfactory given the strength of our market share gains but like-for-like sales trends reflected a combination of country-specific challenges – for example, the Thai floods – and a general weakening of consumer demand in many markets, not least in Europe but also in our important Asian markets, particularly Korea and China.

  Asia, Europe, US LFL* Growth 2011/12
  H1 Q3 Q4 H2 FY

*Exc. petrol, exc. Japan
Note: A full table of quarterly country LFL growth is provided in Appendix 2 on page 18.

Asia 3.8% 0.8% (0.4)% 0.2% 1.9%
Europe 1.0% 0.9% 0.3% >0.6% 0.8%
United States 11.7% 11.9% 12.3% 12.1% 11.9%
Total International 2.7% 1.1% 0.2% 0.7% 1.6%

We have continued a strong pace of new space opening, with 6.9m of net new square feet of space coming on stream in the year. This compares with 5.9m square feet of net new space in 2010/11 and 4.8m square feet in 2009/10. We plan to open a further 5.8m square feet during the current year, with a growing proportion of the new space in less capital-intensive smaller formats – some 49% of the opening programme in 2012/13.

The strengthening of our mature hypermarket assets in Europe and also now in Asia through the introduction of the Extra format continues to deliver good results. We have converted some 34 stores in total to date – 31 in Europe and 3 in Asia, with the first conversions in Thailand and China starting well. The cumulative improvement in sales in these stores is now 17% even after a modest overall reduction in sales area. Given the improvements particularly to the fresh food, general merchandise and clothing departments, profitability has also improved.

The development of our convenience formats internationally, including Express, remains a core element of our expansion plans. We now have over 1,600 such stores outside the UK – and as well as being very popular with customers, just as at home, these are rapidly becoming high returning assets. The first Express stores in the US, with six now trading, have opened well.

Our plans to roll-out our dotcom grocery operations across our markets, initially with a focus on capitals and other large cities – have also made good progress. Our new operation in Prague, which began in January is already trading well ahead of expectations and our second European operation, in Warsaw, will be launched soon. The existing dotcom operations in Korea and Ireland grew combined sales by 41% in the year. Our virtual stores in Korea, located in subway stations and other prominent sites are showing promising results.


  Asia Results* 2011/12
  Actual rates Constant rates
  £m % growth % growth

*Exc. Japan

Asia sales £11,627m 10.5% 10.4%
Asia revenue (exc. VAT, exc. impact of IFRIC 13) £10,828m 10.5% 10.3%
Asia trading profit £737m 21.8% 21.5%
Trading margin (trading profit/revenue) 6.81% 64bp 62bp

Our businesses in Asia delivered another strong performance, with good increases in sales and profits – supported by solid like-for-like growth in the year as a whole and an excellent contribution from new stores. Overall Asia trading profits grew by 21.8% to £737m, and by a similar amount at constant exchange rates. Trading margins improved by 64 basis points, driven by the effect of the Thai flooding – with sales growth temporarily impacted by the disruption caused but profitability supported by adequate insurance cover. Korea and Malaysia's performance also contributed strongly in the year.

With the slowing economy in China, a combination of persistently high inflation and wage cost pressures are making the environment for mainstream retailers much more challenging. This background has led us to take a more cautious stance on the market, at least for the time being. We had already taken a more measured approach to substantial new capital commitments to freehold shopping centres and we have also decided to hold back on the pace of new hypermarket development this year – with plans to open 16 stores, instead of stepping up the pace of expansion as we had intended.

In line with our overall property strategy, we have recently listed successfully a property fund for public offering (PFPO) of the Tesco Lotus Property Fund on the Thai Stock Exchange. Tesco's property activities have one principal objective: to ensure we have the best properties from which to retail; and as a result we also create long-term shareholder value from property development and management. This new fund comprises 17 high quality shopping malls, each anchored by a Tesco Lotus hypermarket. The PFPO raised proceeds of £379m, supporting investment in further innovation and growth in Thailand.

This year we plan to open 3.8m square feet of net new selling area in Asia overall. We have also continued to make good progress in developing strong brands in our leading Asian businesses with further strong growth of Clubcard and promising early expansion of retailing services.


  Europe Results 2011/12
  Actual rates Constant rates
  £m % growth % growth
Europe sales £11,371m 7.7% 7.8%
Europe revenue (exc. VAT, exc. impact of IFRIC 13) £9,866m 7.3% 7.5%
Europe trading profit £529m 0.4% (0.4)%
Trading margin (trading profit/revenue) 5.36% (37)bp (42)bp

The strong increase in sales, profits and margins we saw last year and during the first half of this year in Europe faltered during the second half. Europe profits overall grew by 0.4% to £529m, but profits reduced in the second half and margins also declined. Trading profit growth would have been significantly higher – at 7.6% – but for the first time Hungary sales tax charge of £38m in the year, but this was nevertheless a weaker than expected performance.

This performance was nevertheless resilient in the context of strengthening economic headwinds in Central Europe and the continued effects of severe austerity measures in two of our largest markets – Ireland and Hungary.

As planned, some 2.5m square feet of net new space was opened during the year, and we have a programme to add a further 1.8m square feet of new space across the region this year. In Ireland and Hungary the current economic conditions, and in the latter case the present fiscal environment, mean that we will pursue growth predominantly through existing stores, rather than invest substantial new capital. In Europe, our new space expansion is now largely coming through smaller formats with the hypermarket networks in most markets nearing completion. Last year, smaller formats accounted for 39% of our new space.

United States

  US Results 2011/12
  Actual rates Constant rates
  £m % growth % growth
US sales £638m 27.1% 31.5%
US revenue (exc. VAT, exc. impact of IFRIC 13) £630m 27.3% 31.7%
US trading loss £(153)m Improved 17.7% Improved 15.1%

Fresh & Easy has made encouraging progress against its demanding improvement plan. It reduced its losses for the first time, delivering a reduction of 18% against last year and delivered a sustained improvement in like-for-like sales throughout the year, even against very demanding comparatives and despite absorbing the implementation costs of the 'friends' loyalty programme in the second half.

This performance was driven by further improvements in the offer for customers as we extend the changes we have made to some stores to more of the estate. As a result, we are more confident about the outlook for the business, although clearly much remains to be done.

The business is on track to deliver a further significant reduction in losses during the current year, even though the timing of break-even will now be later than our earlier guidance. This is because we intend to focus on delivering store level profitability first, before pushing on faster with the expansion we need to create sufficient scale to cover our overheads. We ended 2011/12 with 185 stores and this revised development programme will take us to approaching 230 stores by February 2013, consistent with our more conservative approach to new capital commitment across the Group.

Our first clear objective was to accelerate the already strong growth in customer numbers and this is being met. The fourth quarter saw our ninth consecutive quarter of strong like-for-like sales growth and our two-year increase on this measure was 19.6% in the fourth quarter. This growth continues to steadily drive sales per store towards the levels we require.

The further changes we have been rolling out to the stores as we adapt the offer better to the needs of local customers have been very well-received. These include introducing in-store bakeries, loose produce, additional ranges in grocery, as well as many new Fresh & Easy products. The impact of these improvements can also be seen in the performance of new stores.


Non-food categories have been a drag on our performance at home throughout the recession – particularly in like-for-like sales terms. This remained the case in 2011/12 despite some signs of improvement during the third quarter as our efforts in the early months of the year to improve ranging and merchandising came through.

Total general merchandise sales grew during the year, although we saw strengthening headwinds of subdued demand for discretionary items in many markets as the year progressed – including the UK in particular. Despite this tough environment, some large categories – such as toys and sports, and particularly online – did see some growth in the year and electricals also returned to growth in the second half.

General merchandise, clothing & electricals sales in the UK were (3.9%) down year-on-year on a like-for-like basis, reflecting the challenging environment and also, in that context, action we have taken to reduce the level of new space devoted to these areas compared with previous years.

Strengthening the performance of these categories in the UK remains a priority and further planned improvements to ranging, merchandising, pricing and promotions are still to come through. Further, substantial changes to product ranges, category emphasis and space allocation in stores will be implemented in the year ahead.

General merchandise, clothing & electrical sales growth in Asia and Europe was stronger than the UK, although consumer confidence levels remain subdued even in the better performing economies. Clothing sales, increased by a pleasing 12% at constant exchange rates in Central Europe, reflecting the strength of the F&F brand and also the particularly strong performance of clothing in our reformatted Extra hypermarkets.

Tesco Bank

  Tesco Bank Results 2011/12
  £m % growth
Tesco Bank revenue (exc. VAT, exc. impact of IFRIC 13) £1,044m 13.6%
Tesco Bank trading profit £168m (36.4)%
Tesco Bank trading margin 16.09% (1,264)bp
Tesco Bank Baseline profit £203m 29.3%
Tesco Bank Baseline trading margin 19.4% 220bp

In a very important year for Tesco Bank, which marked the near-completion of its new systems and infrastructure, it achieved good business and baseline profit growth. This performance was particularly pleasing given the need to take a conservative approach on new savings and loans business during the final stages of systems migration, a posture which has now changed – giving rise to a resumption of faster growth.

Some 75% of the Bank's business is already done online, making it one of the largest internet banks in the UK and positioning it well for the future, as customers increasingly use digital channels for their financial services needs.

Total revenue increased by 13.6% in the year, driven by a good performance in the insurance business, with over 1.5 million customers choosing to insure their car or home with us, helped also by the change in the insurance operating model following the successful completion of migration in November 2011.

Net income for the Bank as a whole increased by 6% before the additional £57m of PPI provision, which was applied in the first half, and baseline Bank trading profit – that is before all key provisioning movements, including PPI, and before fair value – grew strongly – by 29% to £203m. Fair value releases reduced substantially – from £155m in 2010/11 to £22m this year.

Customer account numbers grew modestly, by 2% in the UK, during the year, driven principally by strong growth in Tesco credit cards, where spend grew by 11% and our market share of transactions increased to 12%. Savings balances have increased by c.£330m (7%) as a result of the successful launch of fixed rate products during the year although loan balances have been temporarily reduced to help workload during migration. Year-on-year, ATM transactions also rose strongly, by 9%. Our new platforms have enabled some significant customer service improvements – for example, instant decisions are now available on loan applications and customers can now open and fund their savings account in ten minutes (previously around two weeks).

Bad debts reduced by 5.2% driven by a reduction in customer defaults due to the application of a robust credit policy and, as a result, attracting good quality assets.

Tesco Bank's overall capital position improved once again from an already good position, with the risk asset ratio improving by 240 basis points to 16.0%. The core Tier 1 ratio remains strong at 15.3% (last year 15.9%).

The large and complex project of infrastructure and systems build, which has been the Bank's main focus for the last three years is now nearing completion, with motor and household insurance, savings accounts and loans now migrated successfully onto our new platforms and with credit cards scheduled shortly. Having taken the decision to slow down the introduction of new products until we have settled in the new bank team, processes and systems, following some technical issues last summer, this is an important milestone, which positions the Bank well for future growth.

This decision to delay the timing of the completion of migration and the launch of new products had implications for the financial performance of the Bank in 2011/12. Specifically, the focus on the completion meant that active marketing for existing and new products, including the launch of mortgages, were deferred until 2012. It also meant a temporary extension of the period during which the Bank absorbs double running costs. These issues impacted total trading profit during the year by around £40m but their effects will begin to reduce, as planned, in the new financial year.

During the first half, having reviewed carefully the level of provisioning which is appropriate to cover claims against Tesco arising from potential mis-selling of payment protection insurance policies through our joint venture with RBS prior to 2008, we decided to increase our provision, which was originally set up in 2009, by a further £57m with our Interim Results in October 2011. Our net provision now stands at £75m.

An income statement, balance sheet and cash flow statement for Tesco Bank is available in the Investor Centre section of our corporate website – (


The year ahead will be one in which Tesco refocuses on putting customers right at the heart of everything we do – including delivering a great shopping experience wherever we trade. It will also be about making sure we are a business that gives something back to society. We will do more to ensure that Tesco is valued and trusted in local communities all around the world for doing the right thing. Operating in 14 countries and now employing over half a million people, we make a major contribution to improving skills, helping local suppliers and farmers and sustaining local communities. Our achievements in the last year include:

Caring for the environment. As announced earlier this year we have been recognised as the best retailer and fourth best company in the world for our carbon management, disclosure and performance in the industry-renowned Carbon Disclosure Project's Global 500 index. We have achieved our target to reduce carbon emissions from our new stores by 31% and existing stores by 5% compared to 2010/11. We also opened Asia's first zero carbon hypermarket in Thailand.

Actively supporting local communities. We have donated 1.9% of pre-tax profits (£74.5 million) to charities and good causes, in terms of direct donations, staff time and gifts in kind, exceeding our target of 1%. In the UK we have raised over £7 million for our charity of the year, the Alzheimer's Society, and in Thailand, following the devastating floods, we donated almost £500,000 and over 50,000 relief bags to support those in need.

Buying and selling products responsibly. This year we continued to strengthen our Ethical Trading programme, increasing our Group resource and in-country capacity to engage with local stakeholders. With a team of 20 ethical trading specialists across Europe, Asia, the Americas and Africa, and over 60 Ethical Champions embedded within Commercial Teams globally, we are working hard to support our suppliers focus on improvement.

Providing customers with healthy choices. We continue to develop healthy ranges across the Group. This year we have extended our Eat Well range in the US and we've launched the Tesco Goodness range for kids in the UK and Ireland. We helped over 8.5 million people get active through our events and partnerships. Our FA skills partnership has now brought football skills training to three million five to eleven year olds since it launched in 2007.

Creating good jobs and careers. We opened our zero carbon state of the art training Academy in Asia earlier this year and have already delivered the equivalent of 11,500 training days. We have also piloted our Tesco Academy Online which will give our people the opportunity to access training anywhere, anytime across our business. We've increased the total number of staff in the Group by over 30,000 this year and in the UK we are committed to creating 20,000 new jobs and offering 10,000 new apprenticeships in the next two years.

More details will be contained in our Corporate Responsibility Review, published next month.

Supplementary Information

The following supplementary information can be found within our analyst pack, which is available via the internet at

  • Group Income Statement
  • Segmental Summary
  • Tesco Bank – Income Statement, Balance Sheet, Cashflow
  • Group Cashflow
  • UK Sales Performance
  • International Sales Performance
  • Group Space Summary and Forecast
  • Earnings Per Share


Investor Relations: Steve Webb
Chris Griffith
01992 644 800
01992 806 149
Press: Tom Hoskin
01992 644 645
0207 404 5959

This document is available via the internet at

A meeting for investors and analysts will be held today at 9.00am at Nomura Bank, 1 Angel Lane, London, EC4R 3AB. Access will be by invitation only. Presentations from the meeting will be available at

An interview with Philip Clarke, Chief Executive, discussing the Preliminary Results is available now to download in video, audio and transcript form at

Additional Disclosures

Risks and Uncertainties

As with any business, risk assessment and the implementation of mitigating actions and controls are vital to successfully achieving the Group's strategy. The Tesco Board has overall responsibility for risk management and internal control within the context of achieving the Group's objectives. The principal risks and uncertainties faced by the Group include:

  • Strategy and Finance
  • Reputation, Operations and People
  • Regulation and External Environment

Greater detail on these risks and uncertainties will be set out in our 2012 Annual Report, the publication of which will be announced in due course.

Statement of Directors' Responsibilities

The Directors confirm that to the best of their knowledge this consolidated financial information has been prepared in accordance with the Disclosure and Transparency Rules of the UK Financial Services Authority, International Financial Reporting Standards (IFRS) and IFRS Interpretation Committee (IFRIC) interpretations, as endorsed by the European Union (EU). The accounting policies applied are consistent with those described in the 2011 Annual Report and Group Financial Statements, apart from those arising from the adoption of new International Financial Reporting Standards and Interpretations. In preparing the consolidated financial information, the Directors have also made reasonable and prudent judgements and estimates and prepared the consolidated financial information on the going concern basis. The consolidated financial information and management report contained herein give a true and fair view of the assets, liabilities, financial position and profit of the Group. The Directors of Tesco PLC as at the date of this announcement are as set out below.

The Board

Sir Richard Broadbent* – Chairman
Philip Clarke – Chief Executive
Tim Mason – Deputy Chief Executive
Andrew Higginson
Laurie McIlwee
Lucy Neville-Rolfe CMG
Gareth Bullock*
Patrick Cescau* – Senior Non-executive Director
Stuart Chambers*
Karen Cook*
Ken Hanna*
Ken Hydon*
Deanna Oppenheimer*
*Non-executive Directors

Company Secretary
Jonathan Lloyd

Appendix 1 – Segmental Sales Growth Rates*

    Total Sales Growth 2011/12 – Actual Rates**
    Q1 Q2 H1 Q3 Q4 H2 FY
Inc. Petrol Group 7.9% 10.0% 8.8% 7.2% 4.8% 6.1% 7.4%
  International 9.5% 16.1% 12.3% 8.2% 5.1% 7.0% 9.5%
  Asia 9.3% 15.4% 11.7% 9.7% 8.3% 9.4% 10.5%
  Europe 9.1% 16.4% 12.4% 5.8% 0.7% 3.4% 7.7%
  United States 21.9% 23.8% 23.1% 29.2% 33.1% 31.0% 27.1%
  UK 7.0% 7.3% 7.1% 6.7% 4.1% 5.4% 6.2%
  Tesco Bank 19.9% 1.9% 10.1% 4.4% 33.3% 17.3% 13.6%
Exc. Petrol Group 6.8% 8.2% 7.3% 5.4% 3.7% 4.6% 5.9%
  International 9.7% 16.2% 12.4% 8.3% 5.1% 6.9% 9.5%
  Asia 9.3% 15.4% 11.7% 9.7% 8.3% 9.4% 10.5%
  Europe 9.5% 16.6% 12.7% 5.8% 0.4% 3.2% 7.7%
  United States 21.9% 23.8% 23.1% 29.2% 33.1% 31.0% 27.1%
  UK 4.9% 4.0% 4.4% 3.7% 2.3% 3.0% 3.7%
  Tesco Bank 19.9% 1.9% 10.1% 4.4% 33.3% 17.3% 13.6%
    Total Sales Growth 2011/12 – Constant Rates**
    Q1 Q2 H1 Q3 Q4 H2 FY

*Growth rates shown on a continuing operations basis.
**Quarterly growth rates based on comparable days for the current year and the previous year comparison for the UK, US and the Republic of Ireland. All other countries benefit from an extra day (29th February 2012) in Quarter 4 2012 in relation to the leap year.

Inc. Petrol Group 8.5% 8.2% 8.2% 7.3% 5.8% 6.7% 7.4%
  International 11.3% 10.5% 10.4% 8.8% 8.2% 8.9% 9.6%
  Asia 12.5% 12.6% 11.9% 8.9% 8.2% 9.0% 10.4%
  Europe 9.1% 7.2% 7.8% 7.7% 7.2% 7.8% 7.8%
  United States 31.7% 32.3% 32.0% 29.6% 32.1% 31.0% 31.5%
  UK 7.0% 7.3% 7.1% 6.7% 4.1% 5.4% 6.2%
  Tesco Bank 19.9% 1.9% 10.1% 4.4% 33.3% 17.3% 13.6%
Exc. Petrol Group 7.4% 6.2% 6.7% 5.5% 4.8% 5.3% 6.0%
  International 11.6% 10.6% 10.6% 8.8% 8.1% 8.8% 9.6%
  Asia 12.5% 12.6% 11.9% 8.9% 8.2% 9.0% 10.4%
  Europe 9.5% 7.4% 8.1% 7.7% 6.9% 7.5% 7.8%
  United States 31.7% 32.3% 32.0% 29.6% 32.1% 31.0% 31.5%
  UK 4.9% 4.0% 4.4% 3.7% 2.3% 3.0% 3.7%
  Tesco Bank 19.9% 1.9% 10.1% 4.4% 33.3% 17.3% 13.6%
    Like-For-Like Sales Growth 2011/12*
    Q1 Q2 H1 Q3 Q4 H2 FY

* Like-for-like growth shown on a continuing operations basis.


Inc. Petrol Group 3.4% 3.2% 3.3% 2.6% 0.9% 1.8% 2.4%
  International 2.9% 2.3% 2.6% 1.2% 0.4% 0.8% 1.6%
  Asia 3.6% 3.9% 3.8% 0.8% (0.4)% 0.2% 1.9%
  Europe 1.7% 0.1% 0.9% 1.0% 0.6% 0.8% 0.9%
  United States 11.1% 12.4% 11.7% 11.9% 12.3% 12.1% 11.9%
  UK 3.4% 3.5% 3.5% 3.4% 1.2% 2.2% 2.8%
  Tesco Bank N/A N/A N/A N/A N/A N/A N/A
Exc. Petrol Group 2.0% 0.9% 1.4% 0.4% (0.5)% (0.1)% 0.6%
  International 3.0% 2.3% 2.7% 1.1% 0.2% 0.7% 1.6%
  Asia 3.6% 3.9% 3.8% 0.8% (0.4)% 0.2% 1.9%
  Europe 2.0% 0.1% 1.0% 0.9% 0.3% 0.6% 0.8%
  United States 11.1% 12.4% 11.7% 11.9% 12.3% 12.1% 11.9%
  UK 1.0% (0.0)% 0.5% 0.1% (1.0)% (0.5)% (0.0)%
  Tesco Bank N/A N/A N/A N/A N/A N/A N/A

Appendix 2 – Country Like-For-Like Growth Inc. VAT Exc. Petrol*

Like-For-Like Growth
  Q1 Q2 H1 Q3 Q4 H2 FY
UK 1.0% (0.0)% 0.5% 0.1% (1.0)% (0.5)% 0.0%
Asia 3.6% 3.9% 3.8% 0.8% (0.4)% 0.2% 1.9%
China 6.4% 6.1% 6.2% 3.4% 1.7% 2.5% 4.1%
Malaysia (3.2)% 5.4% 1.2% (5.0)% (3.4)% (4.1)% (1.7)%
South Korea 1.2% 0.9% 1.0% 0.3% (2.1)% (1.0)% 0.0%
Thailand 8.0% 7.5% 7.8% 1.4% 2.2% 1.9% 4.7%
Europe 2.0% 0.1% 1.0% 0.9% 0.3% 0.6% 0.8%
Czech Republic 3.7% 0.0% 1.8% (0.3)% (5.5)% (3.0)% (0.8)%
Hungary 3.5% 1.8% 2.6% 1.2% 2.3% 1.8% 2.2%
Poland 1.6% (2.2)% (0.4)% 4.0% 2.8% 3.4% 1.6%
Slovakia 11.0% 4.9% 7.8% 5.7% 1.3% 3.3% 5.4%
Turkey 3.4% 5.3% 4.4% (2.6)% 0.2% (1.3)% 1.5%
Republic of Ireland (3.9)% (3.0)% (3.4)% (2.4)% (0.7)% (1.5)% (2.4)%
United States 11.1% 12.4% 11.7% 11.9% 12.3% 12.1% 11.9%
Like-For-Like Growth
  Q1 Q2 H1 Q3 Q4 H2 FY

* Like-for-like growth shown on a continuing operations basis.

UK 1.1% 1.3% 1.2% 1.5% 0.2% 0.8% 1.0%
Asia (1.2)% 5.5% 2.0% 4.9% 2.4% 3.6% 2.8%
China 3.2% 9.3% 6.2% 5.7% 4.3% 4.9% 5.5%
Malaysia (2.1)% (2.0)% (2.1)% 0.6% (1.8)% (0.7)% (1.4)%
South Korea 0.6% 6.0% 3.2% 5.7% 0.8% 3.1% 3.2%
Thailand (5.5)% 4.8% (0.8)% 2.9% 5.0% 4.0% 1.6%
Europe 0.7% 3.7% 2.2% 3.6% 2.4% 3.0% 2.6%
Czech Republic (2.2)% 4.4% 1.1% 2.8% 3.0% 2.9% 2.0%
Hungary (8.6)% (2.5)% (5.4)% 3.8% 2.7% 3.2% (1.2)%
Poland 0.8% 3.2% 2.0% 2.8% 1.3% 2.0% 2.0%
Slovakia 5.8% 11.6% 8.7% 13.7% 12.1% 12.9% 10.9%
Turkey (1.5)% 0.0% (0.7)% 2.8% (2.0)% 0.4% (0.1)%
Republic of Ireland 8.4% 7.4% 7.9% 0.9% (0.2)% 0.3% 3.9%
United States 7.5% 12.2% 9.6% 9.8% 8.6% 9.2% 9.4%

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